Starting a College Fund: Is it too soon?
Every parent wants the best for their child. They want to give them the best foods, best
shelter, best start for the future. One of the best ways to give the best is to plan for the
best. In today’s business world, education is everything. Most parents tend to wait a few
years before starting a college fund, some decide to start when they first find out they are
pregnant. But is it too soon? Here are some facts to help you decide if you should start
now or wait a bit longer.
Facts about Tuition:
According to the Bureau of Labor Statistics, college tuition increases an average of 8%
every year. If your child is born tomorrow, they will pay 3 to 4 times more in tuition
when they enter college than they would today. Today the average tuition of a private
4 year college is $27,293 per year after fees. In 2028 when your child turns 17, at an
8% increase each year will make the tuition cost around $64,404 per year for the same
Out of that $64,000, parents should expect to pay up to 2/3 of the tuition which will not
be covered by grants and scholarships. That 2/3 will have to be paid either by savings,
current income, or loans. That is a hefty expense for most families and sadly most
children are unable to attend college due to inability to afford it. This is a harsh reality
that should inspire parents to begin planning their child’s future as early as possible.
Facts about Loans:
When I attended college I paid for it through loans and grants, combined with my income
at the time. That was a method that I am still paying for years later. Student loans are
a huge expense that can cost a graduate the start they deserve in the business world.
In 2009, 8.8% of graduates defaulted on their student loans. It is also the reason that
graduate bankruptcies are on the rise. This is a statistic that your child can avoid being a
Facts about Saving:
With the economy the way it is today, saving is easier said than done. Prices are
consistently rising as our salaries stay the same. The cost of living takes its toll on any
extra cash we once had.
When planning your child’s educational future every little bit counts. Every dollar saved
is a dollar less you will have to borrow. A decade ago some of the best high yield savings
accounts had APY of 4% to 5% depending on the account. Today the high yield accounts
are 1% to 1.10%. It doesn’t seem much but it can still add up. If you began saving $50 a
month from the day your baby is born, it ill total around $10,300 by the time they turn 17,
assuming your interest rate stays at 1%. If you are able to contribute $200 a month in the
same account it will total $41,200. That is also assuming you choose an account that does
not offer bonuses.
It is also smart when deciding the type of account to invest in, to see what your state
offers. Most states offer a Section 529 Account. This account allows you to lock in
today’s tuition cost for your child’s future education. Other options to look at are IRA’s,
Coverdell ESA’s, and UGMA/UTMA Custodial accounts. Along with great rates and
security for your child’s education, they also offer tax benefits.
When deciding whether or not it is too soon to save for your child’s college fund, you
need to ask, is it too soon to give them security? It is never too soon to give your child a
great future and education. Starting before your child is born can guarantee extra funding
and piece of mind as the child grows and learns.